IT stocks drop luster, as rupee gains strength

On a day when the stock market celebrated the formation of a stable government at the Center, share of information technology (IT) service companies reacted in contrast, with the sectoral index declining two per cent amid strengthening of the rupee against the dollar.

With expectations of this movement continuing, analysts said the export-oriented sector may remain under pressure in the near term. Share may take a beating as investor are seen favoring infrastructure and heavy industries over IT, on hopes of development in spending by the administration.

Indian IT gets 70 % of revenues from export. Every one percent movement in the rupee against the dollar impact operating earnings margin by 40 basis point.

On Friday, the rupee gained sharp, rising to an 11-month high of 58.62 to the dollar intraday, on hopes of further in-flow from foreign institutional investor. The rupee ended at 58.88 compared to its previou close of 59.29.

Reacting to the strengthening, the 30-share Sensex ended 216 points upper at 24,122 after hitting an intraday high of 25,376. But stocks of IT companies Tata Consultancy Service and Infosys fell 1.6 % and 2.8 % on Friday, respectively. Wipro fell 2.6 per cent.

Mid-sized companies also took a beating. Tech Mahindra, Mind tree and Mphasis fell between 0.5 and four per cent.

Sanjoy Sen, senior director, Deloitte India, said, “It was interesting to see some IT stocks taking a dip on the day the Indian stock markets overall scaled unprecedented heights.

“This indicates countervailing factors at play, including the strengthening of the rupee reducing the potential for an easy short-term way of increasing the top line.”

According to a Mumbai-based analyst, “For long enough, IT companies gained from a weak rupee. Now the trend is reversing. I don’t think IT will be the flavour of this summer.”